Household net worth up thanks to residential real estate

A report last week from the Federal Reserve showed household net worth -- assets minus liabilities -- in the second quarter of 2015 rose to a record $84.9 trillion. While the stock market moved sideways, if not lower, in the three-month period there was a $503 billion increase in the value of residential real estate.

The growing demand for housing is finally paying off for homebuilders who have suffered through the Great Recession and the lingering consequences of the slowdown.

Although new-home construction activity fell 3.0 percent in August, the pace of housing starts came in at an annualized rate of 1.13 million units, up 16.6 percent from the same month in 2014 and the highest level since 2008.

While construction slowed slightly, new home sales remained strong, up 5.7 percent in August.

"We continue to hear from our members that more serious home buyers are returning to the market. Builders are gradually adding inventory to meet future demand as they handle shortages of lots and labor," said Tom Woods, chairman of the National Association of Home Builders.

The group reports that nationwide the inventory of new homes for sale stands at an anemic 216,000 units, or a 4.7-month supply, at the current sales pace.

Home builders like Lennar Corp., with developments in San Diego County, say there have been both a pickup in sales and a corresponding increase in construction in the past quarter.

"The housing market continued to improve in its slow and steady manner, as demonstrated in the past few years. This demand is driven primarily by a large production deficit built up over the last several years, an increasing millennial population, reasonable affordability levels and high rental occupancy rates," said Lennar CEO Stuart Miller.

The company reported home deliveries in the past quarter were up 16 percent and orders to purchase are up 10 percent from a year ago.

Like the new home market, the supply of existing homes for sale has been running well below demand and, as a result, prices have been moving steadily higher across the country but especially in the East and West Coast regions.

"Given that there is a sizeable pent-up demand for single-family units, and under-building over the last several years, sales can likely exceed 600,000 for a substantial period before we worry about oversupply. The flip side of the argument is the fact that baby boomers will increasingly move to smaller houses and multifamily units as they age, freeing up existing home supply for millennial families," said Robert Dye, chief economist at Comerica Bank.